I took out money I put in an IRA about 7 years ago. When I took it out I put a portion toward federal tax but I am still having to pay money. Is this correct?

[PaulaM · Accepted solution]

Did you have 20% withheld? 

The 20% withheld is just so you avoid the possibility of incurring an underpayment penalty. That functions in the same way as your withholding on your W-2 does. If you don't have enough withheld on a W-2 to meet your tax liability for the year, you would owe additional taxes with your return as well.

In other words, it is just an estimate of the total taxes that you may owe. It does not mean that it will cover your entire tax liability for the year. The IRA withdraw gets added to your ordinary income and that is what your tax liability is calculated on.

If you were under 59.5, there may also be a 10% early distribution penalty.

[SweetieJean]

It could be, if your actual taxes due are higher than your withholdings.

Did you have 20% withheld?  Your actual tax rate may be higher. Or you have a 10% early distribution penalty.